Variances Flashcards
(17 cards)
What is a variance in standard cost analysis?
The difference between budgeted amounts and actual financial results.
What is the direct materials flexible-budget variance?
The difference between actual direct materials cost and total standard direct materials cost for a period’s output.
What does the direct materials price variance measure?
The difference between the actual and standard cost per unit of material, multiplied by the quantity purchased or used.
List some causes of direct materials price variances.
Failure to take discounts, material price changes, freight cost changes, or variations in material quality.
What does the direct materials usage variance measure?
The difference between actual raw material units used and standard units allowed, multiplied by the standard cost.
Why can a favorable price variance still be problematic?
Low-cost materials might be of poor quality, increasing downstream costs like rework or scrap.
In the Hanson Inc. example, what is the actual price per pound of material?
$3.90 per pound.
What was Hanson’s direct materials price variance (PV)?
$170 favorable.
What was the standard quantity (SQ) of material for 1,000 units?
1,500 pounds.
What was Hanson’s direct materials usage variance (UV)?
$800 unfavorable.
What are common causes of direct materials price variances?
Different material grade, quantity discounts, rush shipping costs.
What are common causes of direct materials usage variances?
Use of poor-quality materials, poorly trained workers, poorly maintained equipment.
What is a direct labor flexible-budget variance?
The difference between actual direct labor cost and total standard direct labor cost for the output produced.
What is the direct labor rate variance?
The difference between the actual and standard wage rate multiplied by the actual hours worked.
What is the direct labor efficiency variance?
The difference between actual labor hours worked and standard labor hours allowed, multiplied by the standard wage rate.
Who is usually responsible for direct labor variances?
The production department.
Why is variance analysis important in operational performance?
It identifies inefficiencies and areas where management action is needed to control costs.
